The Warren Buffet Portfolio As A UK Investor
The Warren Buffet Portfolio
The Berksire Hathaway giant, Warren Buffet, has often been noted for his recommendation to anyone who dosent invest for a living to go for a low cost index fund tracking the S&P 500. He has been quoted saying “I would buy the S&P 500 in a second”.
More specifically, this is where he wants his wife’s money to go, outlined on page 20 of the 2013 letter he sent to Berkshire Hathaway shareholders. In the will for his wife, his specific instructions are to “put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s)”. Buffet believes that the returns of this simple to implement plan will be far superior to that of most investors, including asset managers. Historically this has shown true.
It is rare for such a successful investor like Buffet to give clear cut instruction on what the best plan is for the average investor, never mind the investment strategy he is leaving for his wife. This is why this advice shouln’t be taken lightly. Thinking you can outsmart arguably the greatest investor of all time seems like a fast route to losing a lot of money and personally this is why I chose this portfolio as the back-bone of my holdings.
However, with currency fluctuation, the likely potential for the US dollar price to drop and the change in trading hours associated with S&P 500 trackers available in the UK, this strategy is far less suitable for international investors like myself and creates much more potential for risk, something that Buffet obviously didn't have to account for when leaving a strategy for his wife.
This is why I chose to adjust this portfolio for myself as a UK investor and implement a strategy more appropriate for my situation. This where my money is currently:
My Warren Buffet Portfolio As A UK Investor
This is how my portfolio is structured: 90% in the Vanguard Global All Cap Index Fund and 10% in the Vanguard Global Short Term Bond Index Fund. You can see that I have used the 90/10 rule along with 2 funds that are very similar to Buffets formula but more suited to an overseas investor. I did not intentionally set out to have an all Vanguard portfolio but these were the best options in terms of cost and analysis.
Why I Chose These Holdings
The holdings in the Vanguard Global All Cap Index Fund are centred around S&P 500 companies with 60% of the money allocated to US stocks. As well as this, the funds’ holdings are predominantly large cap with the median market cap coming in at 41 billion.
I chose a global fund because currency risk is the main issue when investing solely in an S&P 500 tracker in the UK. Instead of backing one currency, you are backing currency around the world, as a way of mitigating risk.
Also, incase the US economy did collapse (unlikely but not impossible) you don’t lose the entirety of your equity holdings. Like most investors, I believe the US economy will reign supreme over time but having global diversifications means that when the US isn’t doing well, another part of the world might be. This just a way of having a safety net without massively going astray from the objective.
Instead of picking a fund that tracks only large cap I decided to opt for one which incorporates small and medium too. This is because time has shown returns from holding a portion of small and medium cap stocks superior than holding just large, as they tend to do well when the large caps aren’t. Furthermore, it is more representative of how the economy is structured, giving a more accurate depiction.
The global bond fund holds only short terms bonds and is centred around the US treasury. The bonds part of Buffets portfolio to his wife is made up of US treasury bonds, so having the majority of bond allocation in the US treasury seems like the wise choice.
Again, the bond holdings’ are global to account for currency risk. In addition to this, the fund is hedged so you have further protection from currency risk.
Conclusion
The portfolio Warren Buffet recommends is perfect for the US investor but in my opinion needs some adjustments for someone like myself in the UK, for the reasons previously stated. It seems like going against anything that Buffet recommends would be insanity, this is why the holdings are centred around the US economy. Without the global diversification though, currency risk, among other things, would seriously impair performance.
This is by no means financial advice I just wanted to share the approach I am personally taking to provide other people with inspiration for their own holdings. As always, do your own research.
